EIS investments are a hot trend in the UK market right now. EIS providers and consultancy companies, such as IW Capital, help and support financial strategies for investors and startups. The Enterprise Investment Scheme offers many tax incentives to investors, making these investments very lucrative.
The first significant benefit is income tax refunds, where any investment in EIS is claimable by 30% directly from your income tax. Furthermore, if things do not work out, then the loss on the investment is claimable as a tax loss in the income statement for the current year. This guarantees that, in any case, the government safeguarded at least 50% of your investment regarding tax and tax claims. Capital Gains on EIS investments are incentivized as no capital gains tax is charged on shares attained through EIS investments. Therefore, any profits are tax-free on EIS shares.
Furthermore, capital gains tax can be deferred if reinvested into EIS investments. For example, suppose a person sells some property on which a capital gains tax liability arises. In that case, they can reinvest that amount into EIS, allowing them to defer that liability until the sale of the EIS investment share, whenever possible. There are distinct inheritance tax advantages for EIS investors, which can be discussed with EIS consultants, such as IW Capital.
Startups face many issues when trying to raise funding for their initial setup. Even if they can raise some funds or are ready to launch a product or service that has the potential to succeed in the market, startups need help to gather funds in their second round of funding. Fortunately, EIS investments have been available for all companies and startups in the market for the past seven years. So, startups can easily fund their initial and secondary growth phases through EIS investments.
The most pressing issue that startups face while raising funds for growth is the harsh reality of diluting their company ownership by giving up equity to raise funding. This funding comes with a lot of pressure and strings attached, which limits the growth and scope of activities that can be done by the company. However, this problem is mitigated with EIS by limiting the maximum number of shares an EIS investor can hold to 30%. This ensures that majority ownership is never diluted to the point where the original stakeholders are pushed out of the decision-making process. Startups can safely entertain EIS investors without having to forego their majority shareholding.
